03/06/2003 01:39 PM L&C

ALASKA STATE LEGISLATURE SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 6, 2003
1:39 p.m.
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Bettye Davis
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 72
"An Act extending the termination date of the Regulatory
Commission of Alaska; and providing for an effective date."
MOVED CSSB 72(L&C) OUT OF COMMITTEE
PREVIOUS ACTIONSB 72 - See Labor and Commerce minutes dated 2/25/03.
WITNESS REGISTER
Ms. Nan Thompson, Executive Director
Regulatory Commission of Alaska
701 East Eighth Ave., Ste 300
Anchorage AK 99501
POSITION STATEMENT: Supported SB 72.
Ms. Pat Davidson
Legislative Auditor
Division of Legislative Budget and Audit
PO Box 113300
Juneau AK 99811-3300
POSITION STATEMENT: Commented on SB 72.
Ms. Kristi Catlin
AT&T Alascom
210 E. Bluff Dr.
Anchorage AK 99501
POSITION STATEMENT: Commented on SB 72.
ACTION NARRATIVETAPE 03-9, SIDE A CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:39 p.m. Present were Senators
Ralph Seekins, Gary Stevens, Bettye Davis, Hollis French and
Chair Con Bunde.SB 72-EXTEND REGULATORY COMMISSION OF ALASKA
CHAIR CON BUNDE announced SB 72 to be up for consideration.
MS. NAN THOMPSON, Executive Director, Regulatory Commission of
Alaska (RCA), said she prepared remarks to respond to issues
raised at the last meeting and to provide members with
information about the agency. She supports the governor's bill
that reauthorizes the agency for four years. She explained that
every state in the nation has a regulatory agency to insure that
utility services are available at reasonable prices to its
citizens. Markets transitioning to competition are very
different and the RCA assures that services are fairly priced
and reliable during and after transitions. She continued:
Timing is everything in this process. The utilities
want less regulatory oversight immediately in a
transitional market and consumers are often frustrated
when they can't count on us to resolve billing and
service quality problems with the cellular Internet
providers. We strive to strike the appropriate balance
and to constantly adjust the level of regulation as
the markets develop.
Because the telecommunications industry and their
lobbyists have played out the "phone wars," as
everyone calls them in your halls, I'll use that
industry as an example and try to put some of what
you've been hearing from them in perspective. The
reason there is competition in the telecommunications
industry is because in 1996 Congress...gave the states
enormous responsibility in the Telecom Act to
transition monopoly markets to competition markets
because they recognized that markets vary by state and
that national rules wouldn't get the job done. The
larger local markets in Alaska are ahead of the rest
of the country in the transition to competition. We
got a head start because Ma Bell never provided
service in Alaska. All the state had to go through was
the telecommunications 271 process, the [indisc.] Act.
That act is designed to insure that the incumbent
carrier network is open to competitors before the
local company can enter the long-distance business. We
skipped that step and the three to five years it took
most states to complete it and went directly to the
next step, which is arbitrating interconnection
agreements.
Just after the Telecom Act was passed, GCI filed a
petition for interconnection and asked us to set
prices for leasing parts of the incumbent's networks.
The APUC, as it was then called, finished that process
even before the FCC adopted regulations telling the
state commissions how to set prices. The APUC's board
acknowledged that the FCC was in the process of
setting national pricing rules and invited either
party to ask them to revisit the results after those
rules were clear. That request has come in and the RCA
is now in the process of redoing prices for the
Anchorage market.
It's important for you to know that the controversy
you see here about the appropriate level of continued
regulation and the best way to set prices is being
played out in almost every state nationwide and in the
courts.
MS. THOMPSON said Verizon took the argument that the FCC went
too far in leasing its network to competitors to the U.S.
Supreme Court. The Supreme Court said the FCC correctly
interpreted the Telecom Act. Verizon said investment incentive
was being destroyed, but the court noted that competitors were
making significant investments. (Verizon v. FCC, 122 S.Ct.1646,
2002)
She explained that the FCC defined the costing mechanism as what
it would cost for another efficient carrier to replace the
incumbent's network with the best available technology, not what
the incumbent spent or would spend to rebuild an existing
network. Costs are very different than regulators historically
thought them to be.
SENATOR HOLLIS FRENCH asked if this relates to testimony the
committee heard last week.
MS. THOMPSON explained the testimony the committee heard last
week was about costs. The Supreme Court opinion also addressed
that subject and paralleled some arguments the committee heard
last week. She continued with her statement:
The agency's appeal record tells you that we are doing
our job well. As an administrative agency, we don't
make the law; we apply it. If we are not applying it
correctly, parties may appeal to state or federal
court and ask them to set us straight. The RCA has
issued hundreds of final orders since we started in
July 1999. So far, sixteen have been appealed. The
agency's decisions have not yet been reversed,
although there are several appeals pending. In one
case the court remanded a case to us with instructions
to hold a hearing before making a decision, but none
have reversed a substantive decision. That track
record should tell you that we are successfully
analyzing the facts presented to us and issuing
decisions that are consistent with legal precedents
and supported by the facts in the record. We make
decisions based on evidence presented through a
process designed to insure that all parties' rights
are protected, not on rhetoric.
Consumers win when there is competition. I agree with
Mike Felix when he told you last week that competition
serves the customer well. You need look no further
than your own phone bill for evidence. Your local and
long distance rates are low and you have the option to
purchase many additional services that were not
available five years ago. I hope that competition will
soon bring high-speed Internet access to all residents
of the state of Alaska.
The RCA does more than settle phone wars. We
administer the Power Cost Equalization Program (PCE).
We are reviewing our PCE regulations in response to a
resolution from ARECA to improve the reliability of
the information we use to administer the program and
to increase efficiency amongst the program's
beneficiaries. We also review tariff prices for
pipelines to insure that those who ship to
destinations in Alaska pay just and reasonable rates.
We also review costs incurred by providers of monopoly
services - water, sewer, electric and gas - to insure
that customers pay a fair price for the services they
receive. We set rules in other markets that are
transitioning to competition, such as refuse in some
parts of the state and the long distance market
statewide. We just finished modifying our regulations
to make it easier for long distance carriers that
serve only a small part of the market to sell their
services to Alaskan consumers.
Our regulatory oversight changes as markets change.
Knowledge of the way service is provided is important
to regulating it correctly. In the local telephone
markets, as soon as a competitor has entered the
market we allow the incumbent to lower their prices in
response to market pressures without cost
justification. It is only rate increases that must be
supported by financial proof before they are allowed.
The rules for how much notice a long distance carrier
has to give the RCA and its customer are eased when a
competitor enters the market.
Responsible deregulation is a moving target. The
standards for when less regulatory oversight is
required vary by industry and market. It is our job to
figure out the complexities and best options. We
carefully review any petitions by utilities to remove
unnecessary regulatory requirements. I look forward to
seeing Alascom's effort to define market dominance. I
look forward to seeing their proposal on that. We will
need to carefully balance their desire to be less
regulated in competitive markets with the fact that
they provide the only telecommunications link to the
rest of the state for many of our rural communities.
I offer a few final notes to respond to things we
heard last week and others. First, about the infamous
backlog - it is gone. The chart I distributed shows
the change since 1999, which has been dramatic. This
was accomplished with a lot of hard work by dedicated
staff and commissioners. Our caseload is now
stabilized with around 200 open dockets. We have met
the deadlines imposed by the Legislature last year. We
hope to be able to focus on some of the important
policy issues that arise in markets transitioning to
competition this year. We have an open proceeding on
changes to the competitive local market rules.
Second, our budget - all of the money used by the RCA
comes from utility ratepayers through regulatory cost
charges. We get no general fund money.
Third, the reports you got last week - the legislative
auditor spent time in our office and is familiar with
our mission. I commend their report to you. The study
that was commissioned by the Department of
Administration has some helpful background on the
telecommunications industry in our state. The recently
released Darby report is the work of three
individuals, not the seven contemplated by the
statute, and did not include any input from the RCA.
It can hardly be called a comprehensive study of the
agency when they didn't speak to us. Many of the
recommendations are for actions that we have already
begun that the author could have learned by
researching on our website.
I encourage you to let this agency continue to do its
job. Participation in the sunset reauthorization
process is time-consuming for the agency and detracts
from our ability to handle cases. The Legislature has
the option any year to redirect our mission. I urge
you to reauthorize the agency for four years so we can
get back to work.
CHAIR BUNDE asked if she thought the RCA should be split up to
deal with different industries.
MS. THOMPSON acknowledged that the idea was discussed last year,
but the determination was that the RCA wouldn't be as efficient
as they are now. She added:
Even though we're regulating different industries,
we're still doing basically the same thing, which is
understanding how a utility's cost structure operates
and how they provide services to customers. What you
would lose is the efficiencies that we see across
different industries.... In our state sometimes the
utilities themselves offer more than one type of
service.... Alaska Power Telephone provides both
telephone and electric....
CHAIR BUNDE highlighted the fact that the RCA does not operate
on general fund money and it's the Legislature's job to make
sure it is as efficient as possible.
SENATOR RALPH SEEKINS noted that Mr. Felix testified that
although AT&T is still considered the dominant carrier, its
long-distance market is shrinking while GCI has 46 to 48 percent
of the long-distance business and it is growing. He then asked
Ms. Thompson for her definition of a dominant carrier.
MS. THOMPSON replied that it's important to distinguish which
long distance market Mr. Felix was talking about - the
intrastate or the interstate - because the RCA has jurisdiction
over one and the FCC has jurisdiction over the other. She
pointed out that the FCC is in the process of looking at its
rules for dominant and non-dominant carriers as well. She then
advised that her definition might relate to market share and
with who owns the equipment over which the service is provided.
SENATOR SEEKINS said that AT&T is still considered the dominant
carrier despite a four-year attempt to get relief from the
regulation at the RCA. He asked if the RCA tried to define a
dominant carrier.
MS. THOMPSON replied that she thought Mr. Felix was talking
about the proceeding that has been pending before the FCC for
four years. It has to do with a waiver of certain tariffing
reforms that the FCC imposes because of their dominance. Before
last year's statutory change that prevents the RCA from talking
to the carriers, AT&T Alascom filed a petition [before the FCC]
for waiver of certain tariffing requirements. The RCA initially
objected, as did GCI. The FCC encouraged all interested parties
to talk and the RCA is doing that through a more formal process.
She said the FCC hasn't had a proceeding open to change a
dominant/non-dominant rule for four years.
SENATOR SEEKINS asked if she was saying that Mr. Felix is
confused and there has been no effort to try to change this.
MS. THOMPSON opined that one of them is confused. The RCA had a
proceeding that closed three or four months ago that looked at
the inter-exchange market carrier rules, and that might have
contained some issues related to the ones he brought up.
SENATOR SEEKINS stated that that's why he is confused.
MS. PAT DAVIDSON, Legislative Auditor, joined the committee.
CHAIR BUNDE asked if a two-year extension is for a full two
years or whether the RCA would begin to perform its sunset
activities after the first year.
MS. DAVIDSON explained that if the commission is extended for a
two-year period, it wouldn't go into the wind-down year until
2006. She continued, "So, it would be two full years of
operation, plus the additional one year wind down."
She agreed with Senator Bunde that the same thing would happen
with a four-year term.
CHAIR BUNDE said some changes have taken place within the RCA
since the audit and asked Ms. Davidson if she would recommend
the two-year extension if the audit were performed today.
MS. DAVIDSON replied that she recommended a two-year extension
because she was unable to give the committee a feel for how the
changes are taking place and impacting the utilities or the
public. She added that a process is in place for the RCA to
report on the timelines it missed and that process could be
enhanced as a way of keeping track of the RCA's progress.
SENATOR THERRIAULT said the committee wants to be mindful of the
resources the LBA expends and asked if they talked about a
shorter date.
MS. DAVIDSON said it would take at least two years before LBA
could evaluate any changes. She suggested considering a change
in the scope of the audit, but she did not think LBA would be
able to answer the big questions that might come up until the
changes have been in place for some time. She pointed out that
the LBA's 2003 workload is heavy compared to other years and she
suggested that an alternative would be an enhanced reporting
system so the Legislature could look at and have additional
measures of potential impact.
SENATOR THERRIAULT asked if it would help balance the LBA's
workload to have the extension for three years.
MS. DAVIDSON replied that would be fine, but she wanted to be
sure the Legislature is kept informed, because the RCA is
undergoing significant changes.
CHAIR BUNDE announced an at-ease from 2:13 to 2:17 p.m.
MS. KRISTI CATLIN, Director of Government Relations, AT&T
Alascom, clarified three points:
First, the market share of 42 percent was taken from
the telecommunications study and although it's not
stated explicitly in the study, it is our
understanding that this is a statewide market share
that includes both intrastate and interstate inter-
exchange long distance operations. For clarification,
our intrastate market share is approximately 47
percent for intrastate only.
The second point of clarification is that a man made a
comment that dominance is linked to the requirement to
provide service to a community, which it is in the
statute. The language that we have drafted and that is
currently being reviewed internally would explicitly
retain the carrier of last resort responsibility
unless or until the RCA would decide otherwise. The
carrier of last resort responsibility requires Alascom
to provide service to every community in the state.
So, our definition of dominance would not affect that.
And then, finally, the proceeding that Mr. Felix was
referring to was an RCA proceeding. It was the market
structure proceeding. It addressed dominance and the
commission found that we had not provided enough
information to make a ruling on that at the time. The
proceeding was closed in April of last year. And if
you have any questions, I would be happy to answer
them.
CHAIR BUNDE thanked her for sharing her views and announced that
the committee members had an amendment before them.
SENATOR SEEKINS moved amendment 1 that would delete "2007" and
insert "2006" on page 5, line 1. That would result in a three-
year extension of the sunset for the RCA.
SENATOR DAVIS objected for the purpose of discussion. She asked
for his rationale.
SENATOR SEEKINS explained that if the auditors don't have enough
information to evaluate the RCA then he is nervous about trying
to substitute his lack of information for their complete audit.
SENATOR DAVIS said she appreciates his concern, but she couldn't
see where three years would make that much difference and the
same thing could be said of a four-year extension. The telephone
companies that are complaining about the RCA have made it seem
like there's a war between the companies. She opined that Alaska
should have as many telephone utilities as the population can
afford. If the phone companies are having problems, they need to
work them out. She supported the governor's recommendation for a
four-year extension.
SENATOR SEEKINS responded that it wasn't the telephone wars that
brought him to his decision. Eric Yould, of ARECA, told the
committee that the RCA has serious problems that involve time
process encumbrances and he recommended a one-year extension.
SENATOR DAVIS reminded Senator Seekins that he was not in the
Legislature last year, at which time some legislators
recommended that the RCA be sunsetted altogether. She said the
Legislature couldn't solve the telecommunication problems, but
the RCA could if it is given the opportunity.
CHAIR BUNDE said he is inclined to reach a compromise, but what
solidified the issue for him is that he doesn't want to
overburden the RCA and in two years the RCA will have a
significant challenge reviewing numerous utilities. He asked if
there was continued objection to amendment 1.
SENATOR DAVIS maintained her objection.
CHAIR BUNDE called for a roll call vote. Senators Stevens,
Seekins, French and Bunde voted in favor; Senator Davis voted
against and amendment 1 was adopted.
SENATOR SEEKINS motioned to pass CSSB 72 (L&C) from committee
with individual recommendations and the attached fiscal note.
Chair Bunde asked for a roll call vote and the motion passed
with all members voting in favor.
CHAIR BUNDE adjourned the meeting at 2:30 p.m.